Staying the Course

If you've been investing for any length of time, you've probably heard the phrase “stay the course” more times than you care to remember. Stay the course has been a refrain made popular by the great Jack Bogle to calm investors during rough times in the stock market. It’s become one of those investing clichés that might seem overused, but there’s a reason it’s so commonly repeated: it works.

Over my career, I can’t recall a single time when “staying the course” wasn’t good advice for navigating market volatility. Yes, it can be uncomfortable at times, and it requires patience – but staying the course has always been the right move.

Let’s face it—investing can be a nerve-wracking experience even for seasoned investors. The market goes up one day, down the next, and sometimes seems completely irrational. The human brain is pattern seeking, so when the market drops, we imagine a continuation of the trend. The instinct for some is to “cut losses” and sell everything. It’s a natural reaction—who wants to lose money? But the reality is that trends do reverse and panic selling typically locks in your losses. If you sell during a downturn, you're realizing a loss that could have been avoided if you had simply stayed the course.

Think of it this way, if you liquidate your holdings there are really only two likely outcomes. One is that you get back in later at a higher price. This scenario is often repeated in the future causing a whipsawing effect and a dramatic erosion of your invested capital. The second possibility is that you stay out forever. This might be a prudent course of action for some people who are not cut out for investing. But for most investors, having all-fixed income is a risky strategy because of the potential threat of future inflation on the portfolio.

There is a middle ground between enduring uncomfortable volatility and completely capitulating. If the volatility is too much for you, there’s nothing wrong with adjusting your portfolio. After all, investing isn’t about just chasing returns; it’s about balancing risk and reward in a way that aligns with your personal comfort level and long-term goals.

If you’re finding that the rollercoaster ride of stocks is too unnerving, you can reduce your stock exposure in favor of more bonds. By shifting your allocation, you decrease the overall risk, which may help you sleep better at night without abandoning growth altogether. Keep in mind, while bonds are a good stabilizer, they won’t deliver the same kind of returns as stocks. A well-balanced portfolio still needs a growth component to keep you on track for your financial goals.

Of course, the best time to make adjustments to your risk profile is before a downturn. This is where planning and foresight come into play because you cannot know in advance that a major market correction is on the horizon. But even in the midst of a downturn, it’s crucial to have the right asset allocation in place. This is to ensure that you're positioned for recovery when the market turns around and because you don’t know how worse things can get.

Another key to staying the course is to understand what you own and why you own it. If you have a solid understanding of the fundamentals behind your investments, you're much more likely to stay calm and make rational decisions during times of volatility. 

One of the reasons that I recommend index funds is that it's easy to know what you own: the market itself. These funds are designed to track the performance of a specific market index, such as the S&P 500, or even the broader Dow Jones Total US Stock Market Index which represents essentially all U.S. stocks. When you own an index fund, you own a small piece of every company in that index. This means you’re not betting on any one company, but rather, you're investing in the broader economy.

The beauty of owning index funds is that it aligns your investment strategy with the overall growth of the economy. As the economy grows, so too will the companies that make up the market. And that growth will be reflected in the value of your investment. When you understand that your index funds are a broad, diversified representation of the stock and bond markets, you’re much more likely to weather the storm when market conditions are less than ideal.

This is why it’s so important to think long-term. If you have confidence in the trajectory of the world economy, investing in the stock market—at least in part—should make sense. Sure, there will be ups and downs along the way, but history has shown that the stock market, in general, will trend upward over time.

When the market dips, it’s natural to feel uneasy. But panic selling rarely leads to good outcomes. Instead, take the time to understand what you own and why you own it. When you invest in index funds, you’re owning a piece of the broader market—an investment in the ongoing growth of the economy. If you believe the world economy will continue to grow over time, then staying the course in the stock market makes sense.

As always, if you need guidance on your investment strategy or help navigating volatile markets, don't hesitate to reach out. After all, understanding what you own—and why—is the first step toward confident, long-term investing.